Financial statements and the year-end audit pack

From ledger to a set of statements the auditor can use

A year-end set of financial statements is the balance sheet, income statement, statement of changes in equity and cash flow statement for the year, with notes, prepared from a closed ledger and supported by schedules an auditor can trace back to transactions. It matters because the statements are only accepted when every figure can be tied to evidence, quickly and without re-work.

This guide is about that year-end package: what a complete set contains, how the ledger decides where each account appears, the checks to run before trusting a figure, and the Audit Pack workbook that Skyline Nexus ERP exports for the auditor. For running an individual report, choosing filters and drilling into a figure, see our guide on how to run a trial balance and balance sheet, which covers those screens step by step.

What a complete set contains

Under IAS 1, a complete set of financial statements comprises a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows, notes, and comparative information for the preceding period. IFRS 18, which replaces IAS 1 for annual periods beginning on or after 1 January 2027, keeps the same primary statements but adds defined subtotals in the income statement and new disclosure of management-defined performance measures. Frameworks for smaller companies, such as FRS 102 in the United Kingdom or ASPE in Canada, require a similar set with lighter disclosure.

The ledger produces the primary statements; the notes are written by people, using ledger schedules as their source. In Skyline Nexus ERP the primary statements are under Fiscal Authority, Reports, Financial Statements: Trial Balance, Income Statement (titled Profit and Loss on the page), Balance Sheet, Cash Flow and Changes in Equity. Supporting schedules come from Ledger Reports (General Ledger, Sub-Ledger, Day Book, Audit Trail) and Register Reports (Payment Register, Receipt Register, AR Aging Report, AP Aging Report).

How the ledger decides where each account appears

Statements are only as good as the classification of accounts behind them. In Skyline Nexus ERP each account type belongs to one of five classifications, asset, liability, equity, revenue or expense, and carries three reporting classifications. P&L Category places expenses as Cost of Goods Sold (COGS), Operating Expense, Other or Financial Expense, which decides gross profit and operating income. Balance Sheet Liquidity marks accounts as Current or Non-Current. Cash Flow Activity marks them as Operating, Investing or Financing.

Review these classifications before the first year end, not during it. A bank loan type left as Current puts long-term debt into current liabilities and distorts the current ratio that lenders test; interest classified as Operating Expense rather than Financial Expense overstates costs above operating income. Fiscal Authority, Settings, Report Classifications has an auto-populate action to fill gaps, but the result should still be reviewed by someone who knows the business's loan terms and cost structure.

• Revenue types: Operating or Other, which feeds the Other Income line
• Cost of sales: P&L Category Cost of Goods Sold (COGS), which determines gross profit
• Interest and bank fees on loans: Financial Expense, below operating income
• Loans: split into Current and Non-Current types by repayment date
• Equipment and vehicles: Non-Current, Cash Flow Activity Investing
• Share capital and loans: Cash Flow Activity Financing

Tie-out checks before you trust the statements

A statement that balances is not necessarily correct. Before the year-end set goes to the auditor, run the checks below and keep the evidence. Each is quick, and each catches a different class of error that would otherwise be found by the auditor at a far higher cost in time and fees.

• Trial Balance: total debits equal total credits, with the Difference column at zero
• Balance Sheet: no Balance Sheet is not balanced message; retained earnings roll forward from last year
• Data Verification: trial balance, GL transactions and POS transactions agree
• Day Book Gap Analysis: no journals with a missing or mismatched source document
• VAT Analysis agrees to the VAT Return forms filed for the year
• AR Aging Report and AP Aging Report agree to the receivable and payable control accounts
• Bank balances agree to the year-end bank reconciliations; no unsynced bank warning
• Fiscal year closed, closing entries posted and every period locked

The cash flow statement: what the report gives you

IAS 7 allows operating cash flows to be presented by the direct method, showing cash received from customers and paid to suppliers and employees, or the indirect method, which starts from profit and adjusts for non-cash items and working-capital changes. The Cash Flow report in Skyline Nexus ERP is built from movements on the accounts flagged as cash or bank, each classified by its account type's Cash Flow Activity. It shows Operating, Investing and Financing sections with the Beginning Cash Balance, Net Change in Cash and Ending Cash Balance, filtered by date range and project, which makes it a direct-method analysis of cash movements.

Suppose the year's cash movements are receipts from customers of EUR 820,000, payments to suppliers of 540,000 and to employees of 160,000, equipment bought for 45,000 and a loan repayment of 30,000. Operating cash flow is 820,000 minus 540,000 minus 160,000, EUR 120,000; investing is minus 45,000; financing is minus 30,000. Net change is 45,000, and beginning cash of 60,000 becomes ending cash of 105,000. If your framework or your auditor expects the indirect presentation, build the reconciliation from profit to operating cash flow alongside the report; our guide on the cash flow statement by the indirect method shows how, and the ending cash must agree to the same 105,000.

• Operating: 820,000 - 540,000 - 160,000 = 120,000
• Investing: equipment purchased (45,000)
• Financing: loan repaid (30,000)
• Net change in cash: 120,000 - 45,000 - 30,000 = 45,000
• Beginning cash 60,000 + 45,000 = ending cash 105,000

Changes in equity and the retained earnings roll-forward

The statement of changes in equity reconciles opening to closing equity: share capital issued, profit for the year, dividends and any other movements such as revaluation surpluses. Skyline Nexus ERP produces it as Changes in Equity under Financial Statements. Its most important internal check is the retained earnings roll-forward: opening retained earnings plus profit for the year less dividends must equal closing retained earnings.

With opening retained earnings of CAD 205,000, profit of 70,000 and dividends of 25,000, closing retained earnings must be 250,000. If the Balance Sheet shows a different figure, something was posted directly to retained earnings during the year, or last year's closing entries were changed, and either needs an explanation before the auditor asks. Year-end closing entries in Skyline Nexus ERP carry profit to the Retained Earnings Account through the Income Summary Account, as our guide on fiscal year and period close explains.

The Audit Pack workbook

Auditors ask for the same schedules every year, and assembling them by hand is where year-end weeks disappear. Skyline Nexus ERP exports them together from Fiscal Authority, Reports, Audit Pack (Excel), All Reports. Choose a year and Download, and the system produces one XLSX workbook with a sheet per report, all drawn from the same ledger at the same moment, so the sheets agree with one another.

The year selector offers calendar years from 2024, or All Years, and each calendar-year pack covers 1 January to 31 December. For a financial year that does not end on 31 December, export the individual statements for your own date range, as described below.

• Ledger: Chart of Accounts, Trial Balance, Balance Sheet, Profit and Loss, General Ledger
• Journals: Journal Entries and Journal Lines, the full population for testing
• Sales side: Sales, Sale Returns, Sales All Statuses, Customer Dues (AR)
• Purchase side: Purchases, Purchase Returns, Purchase Orders, Supplier Dues (AP)
• Costs: Expenses, Expense Refunds, Payroll, HCM Payroll
• Cash and tax: Payments and Receipts, VAT Summary (GL), Day Book

Worked example: answering the auditor's PBC list

Auditors send a PBC (prepared by client) list before fieldwork. The mapping below shows how a typical list is answered from the Audit Pack and the ledger reports, and which items still need work outside the system. Preparing it this way means the auditor tests from one file whose sheets agree, rather than from a dozen exports taken on different days.

• Final trial balance and draft statements: Trial Balance, Balance Sheet and Profit and Loss sheets
• Journal entry listing for testing under ISA 240: Journal Entries and Journal Lines sheets, footed to the trial balance
• Aged receivables and payables: Customer Dues (AR) and Supplier Dues (AP) sheets, or the AR and AP Aging Reports at year end
• Revenue and cut-off testing: Sales, Sale Returns and Sales All Statuses sheets
• Payroll reconciliation: Payroll and HCM Payroll sheets against the payroll expense accounts
• VAT reconciliation: VAT Summary (GL) against the VAT returns filed
• Bank: year-end bank reconciliations from Treasury, with bank confirmations requested by the auditor
• Outside the system: fixed-asset additions evidence, contracts, board minutes and the notes

Non-calendar year ends and other exports

For a year ending on 31 March, 30 June or any other date, export each statement for your own fiscal year. The Trial Balance offers As of Date or Date Range, a View Mode of Simple or Opening / Movement / Closing, Show Zero Balances and filters by project and location, with Export Excel, Export PDF and Print. The Income Statement takes a Date Range and the Balance Sheet an As of Date, both with Compare With set to No Comparison, Previous Period or Previous Year, which gives the comparative column the statements require.

Beyond the statements, exports are available for the trial balance summary, the general ledger transactions, all transactions and a comprehensive financial workbook. The Opening / Movement / Closing view of the trial balance is particularly useful at year end: it gives the auditor the lead-schedule format directly, with opening balance, movement for the year and closing balance for every account.

Notes, judgements and what stays with people

No ledger writes the notes. Accounting policies, judgements and estimates, related-party disclosures, commitments, contingencies under IAS 37 and events after the reporting period under IAS 10 are prepared by the finance team and reviewed by the auditor. The ledger's job is to make the numbers in those notes easy to support: the fixed-asset movement from the asset register, the receivables ageing for the expected credit loss discussion under IFRS 9, and the tax balances from the VAT and zakat reports.

Plan the notes alongside the close rather than after it. A short list of the schedules each note needs, with the report that produces each one, turns the notes from a last-minute scramble into an extension of the Audit Pack. Our guide on preparing for an external audit sets out the full timeline.